It is no secret that the North American retail landscape has faced some challenges in recent years. Consumption patterns have changed due to increasing inventory costs, the emergence of e-commerce giants such as Amazon, stagnant or declining purchasing power; meanwhile commercial rents have increased both in the US and Canada, especially within desirable postal codes. Some retailers are adapting to this new reality by maximizing their square footage and implementing “smaller is better” strategies.
Downsizing vs rightsizing
“Downsizing” and “rightsizing” are two terms with similar meanings yet they often translate into different things in the context of the retail sector.
Downsizing mostly refers to planned shutdowns of retail locations and the layoffs of a substantial number of employees. The primary motive being the reduction of labour and operating costs and therefore comes with a negative connotation.
On the other hand, “rightsizing” is a more positive concept. Rightsizing occurs when a company restructures its human resources to align with company goals and strategies. Such may include a combination of department and position cuts with a more efficient use of one’s existing square footage based on customer demand and preferences.
US-based department store chain Kohl’s has recently adopted a rightsizing strategy with encouraging results. Kohl’s has shrunk hundreds of stores in its 1,160-location fleet from 90,000 square feet to about 60,000. Furthermore, the company is developing an even smaller 35,000 square foot store model at 12 locations hoping to reach new markets, including downtown locations.
This rightsizing strategy is aiming to maintain brand presence, improve inventory management through “unsexy but essential technologies” and help support e-commerce activities given many shoppers prefer to pick up orders in-store (online representing 18% of company sales as of April 2018). During the holiday quarter Kohl’s sales rose 6.3%, its gross margin was up due in part to a 7% drop in inventory.
Taking one step further: Micro-stores
There are retailers that are taking the rightsizing approach much further with “micro-stores”.
In September 2017, Nordstrom, the US-based high-end clothing department store chain, announced the launch of Nordstrom Local – “the company’s latest retail concept and neighborhood hub where customers can shop and access Nordstrom services in a convenient, central location”.
Nordstrom Local has a minimal 3,000 square foot footprint; significantly smaller than the average 140,000 square foot Nordstrom store. This concept store has no dedicated inventory: customers have access to personal stylists (who can transfer merchandise in for customers) as well as a suite of convenient services such as “Buy Online, Pick-Up In-Store”, “Alterations & Tailoring”, and manicure appointments. Customers can also make returns at Nordstrom Local from Nordstrom stores, Nordstrom.com and Trunk Club.
Ephemeral stores: Another way to attract shoppers
A variant of the micro-store is the “ephemeral store” (also commonly referred to as “pop-up shops”). They are basically small sized-stores that temporarily reside in a vacant standalone commercial venue or within an occupied structure.
“Designed to share a unique experience and experience pleasure of discovery, they have little time to seduce, but are likely to mark the imagination for a long time… Entering an ephemeral shop means discovering new urban territory. Located in atypical venues, these stores often offer an amazing decor and allow a meticulous staging of products. Customers appreciate seeing the brand they love showcased in an unusual environment.” explains events agency Make it Happen in a recent blog post.
Montreal-based ALDO Group, a global chain of shoe and accessories stores, has been known to employ this strategy with its “Call It Spring” brand, placing pop-up shops inside 600 JCPenney department stores in the US as early as 2011.
Facing a potentially “doom and gloom” landscape, retailers are becoming more and more creative and efficient with their square footage utilization. The future of retail is bound to become smaller, niftier and more personalized.